FOMC's Beige Book indicates that things could not be better... if you ignore the record unemployment of course and the tens of trillions in rollover debt, and the quadrillions in 2100 deficits, and that damn snowfall which came at a very sensitive time for the economy. So yes, aside from that, all is great.
Prepared at the Federal Reserve Bank of Kansas City and based on information collected on or before February 22, 2010. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.
Reports from the twelve Federal Reserve Districts indicated that economic conditions continued to expand since the last report, although severe snowstorms in early February held back activity in several Districts. Nine Districts reported that economic activity improved, but in most cases the increases were modest. Overall conditions were described as mixed in the Atlanta and St. Louis Districts, though St. Louis noted further signs of improvement in some areas. Richmond reported that economic activity slackened or remained soft across most sectors, due importantly to especially severe February weather in that region.
Consumer spending improved slightly in many Districts since the last survey, but severe snowstorms in early February limited activity in some Districts. Tourist activity was reported as increased or mixed, with some improvement in hotel occupancies. The demand for services was generally positive across Districts, most notably for health-care and information technology firms. Of the five Districts reporting on transportation, three characterized activity as improved over the previous survey. Manufacturing activity strengthened in most regions, particularly in the high-tech equipment, automobile, and metal industries. Residential real estate markets improved in a number of Districts, although several Districts noted that activity softened or remained weak partly due to extreme winter weather. Most Districts characterized commercial real estate and construction activity as weak or having declined further, but some Districts noted slight stabilization and a few signs of modest improvement. Loan demand remained weak, and lending standards remained tight across the country. Harsh weather continued to negatively affect agricultural activity, although some Districts reported favorable crop conditions. Districts reporting on energy activity said it continued to strengthen, particularly drilling for natural gas.
Price pressures were mostly limited, with the exception of some increases in raw materials prices. Even with input costs rising, selling prices remained stable due to competitive pressures and limited pricing power. Although some Districts reported an uptick in hiring or a slowdown in layoffs, labor markets generally remained soft throughout the nation, which resulted in minimal wage pressures.
Consumer Spending and Tourism
Consumer spending showed signs of improvement in many Districts since the last report but was hampered in several regions by severe weather conditions in early February. Retail sales improved in the Chicago, Minneapolis, Dallas, and San Francisco Districts, and New York said sales were well above year-ago levels in January and met expectations in February despite inclement weather. Philadelphia also reported that sales were moving up slowly until snowstorms hit in February. Boston and Cleveland characterized sales as mixed but slightly higher overall than year ago levels. Sales were lower than expected in the Atlanta and Kansas City Districts and were down from year-ago levels in the St. Louis District. Several Districts reported that sales were strongest for lower-priced items, while sales of luxury and big ticket items remained sluggish. However, San Francisco noted scattered reports of increased discretionary spending, and Cleveland said some retailers noted a broader, if still slight, increase in demand across a variety of products. Inventories were being managed carefully and held at fairly low levels in most Districts, but Chicago said rising sales were leading retailers to begin rebuilding inventories from low levels.
Auto sales were generally reported as flat or down, with a few Districts again noting that some of the sluggishness was likely due to poor weather conditions. New York, Cleveland, and San Francisco all noted some softening in new auto sales, though New York cited brisk sales of used vehicles. Chicago and Kansas City also reported declining auto sales, while Dallas noted some seasonal softness and Atlanta said sales remained weak. Some Districts reported modest improvement in auto credit conditions. Cleveland noted that many consumers remain reliant on manufacturers' incentives, and auto dealers in the Chicago District blamed part of their recent sales decline on reduced factory incentives.
Districts reporting on tourism said that activity was either rising or mixed since the last survey period. Ski resorts in the Richmond and Kansas City Districts reported at least modest rebounds in activity from year-ago levels, while Minneapolis characterized skier visits to a Montana resort as flat. New York said hotel occupancies in Manhattan were up considerably from a year ago in January and Broadway theatre activity was robust before falling off due to weather in February. Atlanta also reported rising tourism activity related to several successful major sporting events and a well-attended Mardi Gras in New Orleans. San Francisco noted increases in visitors to Hawaii and Las Vegas and said hotel occupancies stabilized in some other areas.
Nonfinancial services activity was reported as steady or improved by the majority of Districts. Boston, St. Louis, Minneapolis, and San Francisco reported generally solid demand in health-care services, although Minneapolis noted continued weakness in elective procedures. New York indicated that a growing number of service firms planned to increase capital spending in the months ahead, but investment expectations diminished among high-tech companies in the Kansas City District. Richmond reported that service revenues fell due to the record snowstorms, but a few contacts saw a slight pickup in demand, particularly architectural firms, hospitals, and financial service professionals.
In transportation services, Cleveland, Atlanta, and Kansas City reported an improvement in activity since the last survey, while Dallas said activity was mixed and St. Louis noted large job cuts in the industry. Regional rail loadings were above year-ago levels in the Atlanta District, especially for autos, chemicals, metals, and some construction-related equipment. Intermodal firms in the Dallas District reported no change in cargo volumes, with a rise in exports being offset by a decline in imports. Although shipping volumes increased, Cleveland noted that margins remained depressed due to over-capacity issues, limiting investment in new trucks.
Manufacturing activity increased further in most Districts, although Minneapolis, Dallas, and San Francisco characterized overall activity as flat or mixed. Philadelphia reported widespread production increases across most industries, and manufacturers in the Cleveland District reported a general rise in capacity utilization. Many Districts reported strong production in metals, and the Boston, Dallas, and San Francisco Districts noted strength in high-tech equipment, particularly semiconductors. Cleveland, Chicago, St. Louis, and Dallas noted solid improvements in auto-related manufacturing. A consumer goods company in the Boston District said European sales were at healthier levels. Contacts in the Chicago District reported strong growth in Asian exports but remained concerned about China's underlying economic strength. Dallas reported that exports for natural-gas based products remained strong, but weak demand for refined products has trimmed margins and cut capacity utilization further. Construction-related activity remained weak in the Chicago and Dallas Districts, and new orders for commercial aircraft and parts were sluggish in the San Francisco District. Philadelphia and Richmond noted productions delays due to the winter snowstorms in February, but some factories were able to make up the losses with longer work hours and extended shifts. Several manufacturers in the Philadelphia District said production gains could be limited due to continued tightening in credit markets and adverse developments in taxes and regulations. Plant managers in a few Districts reported that a large number of customers were simply restocking inventories, leading to concerns about the sustainability of the increase. However, contacts in most Districts remained optimistic for future months, with several reports of planned increases in capital spending.
Real Estate and Construction
Residential real estate markets improved in a number of Districts, remained weak or softened further in the New York, Atlanta, and Chicago Districts, was little changed in the San Francisco District, and characterized as mixed in the St. Louis District. Richmond also reported overall housing activity as mixed, but one contact noted that absent the harsh weather, market conditions might have improved. Adverse weather conditions also hampered home sales and construction in the New York, Philadelphia, and Atlanta Districts. Most Districts attributed stronger home sales to the home-buyer tax credit, with several contacts apprehensive about future sales once the credit expires on April 30. Philadelphia, Cleveland, Kansas City, and Dallas reported that sales were strongest for low-priced and starter homes, while Dallas cited financing difficulties for high-end homes. Home construction was down or stagnant in most Districts, with the exception of the Minneapolis, Kansas City, and Dallas Districts. Atlanta said the most pronounced weakness was among Georgia homebuilders, and San Francisco attributed weak construction activity to elevated home inventory levels. Home prices mostly remained flat or declined slightly, but signs of improvement were noted in the Boston and San Francisco Districts. A real estate agent in a relatively upscale area of the New York District said prices have continued to drift downward but that short sales were relatively rare and most transactions were still above the mortgage balance.
Commercial real estate conditions remained weak or declined further in most Districts, although some Districts noted slight stabilization or modest signs of improvement. Commercial real estate activity weakened in the Richmond, Minneapolis, Kansas City, Dallas, and San Francisco Districts, though Dallas noted that leasing fell at a slower rate and San Francisco cited increased leasing in some segments. Boston and Philadelphia said conditions remain weak, but both noted some improvement in sales of commercial space. New York reported softer activity in the New York City area but some steadying in vacancies and rents elsewhere, while St. Louis said activity remained weak throughout the District. Several Districts also noted that many tenants were pushing for, and in some cases receiving, concessions on rents. All Districts reporting on commercial construction said that activity remained weak or slow, except for some moderate boost from federal stimulus projects and other public construction. Credit for commercial development and transactions was still very difficult to obtain in several Districts, though San Francisco noted a slight improvement in financing availability.
Banking and Finance
Loan demand remained weak across the country. New York, Cleveland, and Kansas City reported decreased demand for most types of loans. Other Districts said loan demand was unchanged but soft. Richmond and Chicago noted that the weak economic outlook was holding back loan demand, and San Francisco said caution about hiring and spending plans was keeping businesses from seeking credit. However, Philadelphia and Richmond reported banks were receiving more inquiries from businesses about loans, and Dallas said contacts were hopeful that loan demand would pick up by the end of the year.
Most Districts indicated that banks remained cautious about lending. New York, St. Louis, and Kansas City reported somewhat tighter credit standards on commercial real estate loans, and New York noted tighter standards for commercial and industrial loans. In other Districts, credit standards were little changed but remained tight. Atlanta reported that banks had ample liquidity but were reluctant to reduce cash reserves. Chicago said a leveling in asset quality was causing large banks to become more interested in lending to prime borrowers, but strained balance sheets were holding back lending by mid-size banks. In the Dallas District, smaller banks reported that regulatory requirements were limiting their ability to expand real estate lending. Loan quality remained a concern but showed signs of stabilizing in some Districts. New York, Dallas, and San Francisco cited further declines in loan quality. In addition, banks in the Philadelphia and Kansas City Districts were reported to be slightly less pessimistic about future loan quality than in the previous survey.
Agriculture and Natural Resources
Harsh winter weather continued to dampen overall agricultural activity, although crop conditions were still generally favorable in most Districts. Minneapolis, Kansas City, and Dallas reported that livestock were stressed by severe weather and that producers provided supplemental feed due to poor grazing conditions. Atlanta commented that cold temperatures caused minor freeze damage to vegetable and citrus crops. Despite below-average temperatures, Kansas City reported the winter wheat crop was in generally good condition. Dallas and San Francisco said that heavy rains and snowfall improved soil moisture for this year's crop production, though some contacts were concerned that spring planting could be delayed if fields remain too wet. Crop prices edged down following the bumper fall harvest, but Chicago noted that high-quality grain was selling at a premium, due in part to strong export demand. Hog and cattle prices strengthened and dairy prices were flat. Kansas City noted stronger farm incomes from crop production, while agricultural lenders in the Minneapolis District expected farm income and spending to decrease.
Energy activity generally strengthened since the last survey period. Kansas City and Dallas reported increased drilling activity, especially for natural gas, and Cleveland noted increased natural gas-related investment. However, producers in the Kansas City District were concerned that a boost in supply from shale gas production could lower natural gas prices later in the year. Minneapolis reported that oil exploration expanded in February, while oil production was stable in the Atlanta and San Francisco Districts. Coal production in the Cleveland and Kansas City Districts remained below year-ago levels. Minneapolis reported brisk activity in metal mining and continued energy construction.
Employment, Wages, and Prices
The pace of layoffs slowed in most Districts, but hiring plans still remained generally soft. New York cited a slowdown in layoffs at a securities firm and noted a pickup in hiring in what was still characterized as an exceptionally weak legal industry. Staffing firms in the Boston District also saw a strengthening in demand, particularly from the financial and manufacturing sectors. Several manufacturing and construction firms in the Cleveland District began recalling workers, and temporary staffing accelerated in the Richmond, Atlanta, and Chicago Districts. However, Chicago said demand for permanent workers was low, and a manufacturing contact in the Richmond District held back employment due to productivity improvements. Layoffs were also reported at several retail and manufacturing firms in the Dallas District, and Minneapolis said companies in the medical insurance and financial services industries reduced employment. Wage pressures were minimal, but Boston and Cleveland noted a lift in salary freezes and Richmond said wages rose at service and retail businesses.
The majority of Districts reported limited price pressures, although several noted rising input costs due to higher commodities prices. Boston, Cleveland, Chicago, and Dallas noted an increase in metals prices, particularly steel, and Chicago and Kansas City said the upward pressure on some raw materials prices was likely to continue. Lumber prices rose in the Cleveland and Richmond Districts due in large part to weather-related supply issues. On the other hand, San Francisco reported commodity prices were stable or down, with declines in natural gas, copper, and aluminum prices. Some contacts in the Boston District said customers sought fewer price concessions from vendors in order to better ensure reliable deliveries. But nearly all Districts reported limited pricing power, with many firms unable to increase selling prices due to competitive pressure. Retail prices were stable in most Districts, although San Francisco noted heavy discounting. Districts generally expected stable prices overall heading forward.